A tale of Two Right Feet: indemnity costs for baby business

12 February 2018

The tale of Two Right Feet Limited reminds us of the importance of investigating and considering the merits of a claim prior to commencing proceedings, and the dangers of forging ahead with speculative litigation.

In July 2017 a judgment of the High Court of Justice in Two Right Feet Limited (In Liquidation) v National Westminster Bank Plc, Royal Bank of Scotland Plc, KPMG LLP[1] ordered Two Right Feet Limited, an insolvent online baby products business (previously featured on BBC’s Watchdog), to pay indemnity costs of the three defendants.

Indemnity costs

Typically, costs awarded in litigation are ordered on the “standard basis”. This means that only those which are (a) proportionate, (b) reasonably incurred and (c) reasonable in amount will be allowed. However, costs can alternatively be ordered on an “indemnity basis”; indemnity costs, which are likely to be higher than those on the standard basis are a punishment designed to compensate the receiving party. Consequently proportionality is not considered on assessment and the paying party can only challenge unreasonable costs.

Indemnity costs awards are not made lightly by the court and, as the Judge in Two Right Feet stated, are only made where a party’s conduct carries the case out of the norm.

A case out of the norm

Two Right Feet Limited commenced its claim for £20 million in March 2015. The claim made serious allegations of deceit and unlawful means conspiracy and alleged that the bank owed it a duty of care which was breached when it failed to lend it further monies. The claim was subsequently discontinued.

On discontinuance, under the Civil Procedure Rules (CPR 44.9(1)) the default position is a costs order against the claimant on the standard basis. However, in Two Right Feet the court ruled that it was one of the unusual cases where the claimant’s conduct was out of the norm and awarded indemnity costs. The judgment noted the following:

  1. Pre-action – There was a failure to engage in the pre-action protocol and it appears Two Right Feet Limited commenced the claim without undertaking investigations into the merits of the claim, including the factual materials within its own control.
  2. Merits – The claim was speculative and weak. The quantum of the claim was exaggerated and “ludicrous”. There were serious issues in relation to the making of improper and unjustified allegations.
  3. Disclosure – The non-involvement of solicitors in disclosure was remarkable and the approach was thoroughly misconceived, wrongly gone about and not compliant with the CPR.

The lesson

This case is clearly an extreme example of how not to conduct litigation. However, it is also an important reminder of the importance of precipitously bringing proceedings without investigating and assessing a claim at the outset.

[1][2017] EWHC 1745 (Ch)